Medical Marijuana Control Program cultivator licensing scoring ... - Ohio

[Pages:46]Medical Marijuana Control Program cultivator licensing scoring analysis ? Level 2 applications

State of Ohio Department of Commerce

April 28, 2020

This report is intended solely for the information and use of the State of Ohio Department of Commerce and its counsel and is not intended to be and should not be used by anyone other than these specified parties.

State of Ohio Department of Commerce ? Medical Marijuana Control Program cultivator licensing scoring analysis

Table of contents

Limitations and report restrictions.......................................................................................................................3

Introduction and scope........................................................................................................................................4

EY's retention Background Disputes/legal proceedings

DOC's process for evaluating Level 2 applications ..............................................................................................7

Intake Section 1 overview Redaction Section 2 overview Original DOC Score Workbook Step 1 scoring Record keeping adjustment Step 2 scoring Redaction adjustment Score after qualifiers and due diligence checks Summary of procedures performed ................................................................................................................... 12

EY's Section 2 scoring analysis Consensus score sheets Data collection Scoring analysis Original DOC Score Workbook Export from review platform and additional analysis Re-review Recalculated Score and Recalculated Rank Assumptions Summary of Level 2 findings............................................................................................................................ 17

Level 2 scoring differences summary Category 1 difference Category 2 difference Record keeping adjustment Scoring rubric creation DOC scoring observations Program and control observations Conclusion Appendix A...................................................................................................................................................... 28

Appendix B...................................................................................................................................................... 29

Appendix C...................................................................................................................................................... 30

Appendix D...................................................................................................................................................... 31

Appendix E ...................................................................................................................................................... 33

Appendix F ...................................................................................................................................................... 37

Appendix G...................................................................................................................................................... 43

Appendix H.1 and H.2 ...................................................................................................... 44-46

This report is intended solely for the information and use of the State of Ohio Department of Commerce and its counsel and is not intended to be and should not be used by anyone other than these specified parties.

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State of Ohio Department of Commerce ? Medical Marijuana Control Program cultivator licensing scoring analysis

Limitations and report restrictions

This report is not an assurance report or audit opinion, as those terms are defined by applicable standards. Further, EY's services do not constitute an audit, review, examination, or other form of attestation as those terms are defined by applicable professional standards. Additionally, the procedures do not address the effectiveness of internal controls over financial reporting under Section 404 of the Sarbanes-Oxley Act. Our work has been limited in scope and time, and we note that additional procedures may have identified additional findings. Our work cannot be relied upon to have identified all information or issues that may be of relevance or to have uncovered all potential errors, mistakes or omissions. EY is a public accounting firm and does not provide legal advice. With regard to findings relating to the Medical Marijuana Control Program ("MMCP") cultivator licensing analysis, the State of Ohio Department of Commerce ("DOC") should rely on its legal advisors to review these findings from a legal perspective. This report is intended solely for the information and use of the DOC and its legal counsel, should not be relied upon by any other parties, and its distribution is subject to certain conditions.

This report is intended solely for the information and use of the State of Ohio Department of Commerce and its counsel and is not intended to be and should not be used by anyone other than these specified parties.

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State of Ohio Department of Commerce ? Medical Marijuana Control Program cultivator licensing scoring analysis

Introduction and scope

EY's retention

EY was engaged by Squire Patton Boggs (US) LLP ("SPB") to (1) perform an analysis of the scoring process relating to applications to receive licenses to cultivate medical marijuana under the State of Ohio's program for medical marijuana and (2) if appropriate, recalculate the score received by individual applicants. Our engagement agreement, dated April 18, 2018, sets forth the terms of our engagement and the anticipated reporting of the results of our procedures. This report details our procedures performed and the associated findings from our work.

Background

Effective on September 8, 2016, House Bill 523 legalized medical marijuana in Ohio. This bill established the basic framework for Ohio's MMCP. The DOC, the State Medical Board of Ohio and the State of Ohio Board of Pharmacy are the three state government agencies responsible for the operation of this program. The DOC is responsible for overseeing cultivators, processors and testing laboratories. As part of this responsibility, the DOC implemented a licensing process to award cultivator licenses, including 12 Level 1 licenses and 12 Level 2 licenses. Level 1 licenses would authorize cultivators up to 25,000 square feet of cultivation area while Level 2 would authorize cultivators up to 3,000 square feet of cultivation area.1 The MMCP required Level 1 applicants to certify they have at least $500,000 in liquid assets, which are unencumbered and can be converted within 30 days and Level 2 applicants to certify they have at least $50,000 in liquid assets, which are unencumbered and can be converted within 30 days.2

In April 2017, the DOC released application forms to the public so that qualified entities could apply for a cultivation license. In June 2017, the DOC accepted cultivator applications (Level 2 applications from June 5 ? 16, 2017 and Level 1 applications from June 19 ? 30, 2017). In total, the DOC received 109 Level 1 applications and 76 Level 2 applications.

To review and score the application contents, the DOC identified specialists with applicable experience to conduct the application review and scoring. The DOC engaged external consultants with technical expertise in the medical marijuana industry who assisted the DOC with the development of the cultivation application program and the scoring of applications received. Three external consultants were selected specifically to assist with the cultivation and quality assurance aspects of the program and to serve as part of the scoring teams to analyze and score the quality assurance and operations portions of the applications. The DOC also identified certain State of Ohio employees with experience and expertise in each of the five plan areas to

1 2 MMCP 1B Liquid Assets Form ? OAC 3796:2-1-03(A)(1), 3796:2-1-03(B)(5)(c)

This report is intended solely for the information and use of the State of Ohio Department of Commerce and its counsel and is not intended to be and should not be used by anyone other than these specified parties.

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State of Ohio Department of Commerce ? Medical Marijuana Control Program cultivator licensing scoring analysis

assist in scoring the applications. In total, 25 individuals were involved in the application scoring process, 22 of whom were State of Ohio employees.3

The method used to review and score applications was created by the DOC based on Ohio revised code ("R.C.") Chapter 3796 and input and feedback from both external consultants and benchmarking discussions held with other states and regulators. During June and July 2017, the DOC and its external consultants updated and finalized the scoring approach and the associated documents to be used in the scoring process. This approach and methodology was consistent for both Level 1 and Level 2 applications.

On November 3, 20174, the DOC announced 11 recipients of the Level 2 provisional licenses; one additional recipient of a Level 2 provisional license was announced on November 30, 2017, along with the announcement of Level 1 provisional licenses. The following listing includes 12 entities who were originally awarded Level 2 provisional licenses by the DOC as a result of the licensing process5:

Application #

Entity Name

MMCP-C-201706-0010

MMCP-C-201706-0011 MMCP-C-201706-0012 MMCP-C-201706-0017 MMCP-C-201706-0038 MMCP-C-201706-0035 MMCP-C-201706-0027 MMCP-C-201706-0066 MMCP-C-201706-0075 MMCP-C-201706-0057 MMCP-C-201706-0013 MMCP-C-201706-0003

MMCP-C-201706-0076 MMCP-C-201706-0015 MMCP-C-201706-0025

Fire Rock, LTD (Columbus)

Fire Rock, LTD (Canton) Fire Rock, LTD (Akron) FN Group Holdings Mother Grows Best LLC OhiGrow LLC Ancient Roots LLC7 Ohio Clean Leaf LLC (Dayton) Ohio Clean Leaf LLC (Carroll) Ascension Bio Medical Agri-Med Ohio LLC Paragon Development Group LLC Hemma LLC Galenas LLC Farkas Farms, LLC

Score6

178.92 178.92 178.92 176.76 172.00 168.76 168.76 160.56 160.56 157.08 156.60 154.56 151.28 148.92 143.08

Rank

1 1 1 2 3 4/5 4/5 6 6 7 8 9 10 11 12

3 4 5 We are aware of the Department's issuance of a 13th provisional license on July 19, 2018 per the R.C. Chapter 119 Administrative Procedure process described on page 6 of this report 6 The score indicated in the chart above is the `Score AFTER Qualifiers' from the DOC's Original Score Workbook. This score is equal to the raw scores less any redaction and record keeping adjustments multiplied by the weighted scores for each individual plan. Lastly, each application must meet each of the minimum point thresholds to qualify for a `Score AFTER Qualifiers'. 7 Ancient Roots LLC (MMCP-C-201706-0027) was the only Level 2 applicant that certified that it was owned and controlled by an economically disadvantaged group (EDG) as defined by Ohio R.C. Chapter 3796.09(C). Ancient Roots LLC was awarded a provisional license; however, the applicant was awarded a provisional license based solely on its Score After Qualifiers and not its EDG status.

This report is intended solely for the information and use of the State of Ohio Department of Commerce and its counsel and is not intended to be and should not be used by anyone other than these specified parties.

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State of Ohio Department of Commerce ? Medical Marijuana Control Program cultivator licensing scoring analysis

Disputes/legal proceedings A Notice of Intent to Deny Application for Medical Marijuana Cultivator Provisional License and Notice of Opportunity for Hearing was sent to every applicant that was not awarded a provisional license notifying the applicant that it was entitled to an administrative hearing under the R.C. Chapter 119 Administrative Procedure process ("119 Hearings") to review and challenge the DOC's intent to deny it a provisional license. Any applicant not awarded a provisional license had 30 days to request a hearing through the 119 Hearings process. In total, 67 Level 1 and 2 applicants initially requested a 119 Hearing based on the provisional licensing results.

This report is intended solely for the information and use of the State of Ohio Department of Commerce and its counsel and is not intended to be and should not be used by anyone other than these specified parties.

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State of Ohio Department of Commerce ? Medical Marijuana Control Program cultivator licensing scoring analysis

DOC's process for evaluating Level 2 applications

Intake The DOC accepted applications for the provisional cultivator licenses, each application requiring the submission of two electronic copies on standard CD-R or DVD-R and one printed hardcopy, which was required to be identical to the electronic version. All applications were required to be hand-delivered to the MMCP. An electronic copy of each application was downloaded to the DOC's Tumbleweed system, a secured document repository, and a secure copy of the application was maintained by the DOC in a locked, access-restricted storage room.

To facilitate an anonymous and impartial review of the applications, the DOC assigned each application a unique numerical ID so that reviewers would not have access to the entity names associated with any application. Each electronic application was then separated into Sections 1 and 2, with the individual plans required to be submitted in Section 2 being further separated to facilitate the independent review process. Section 2 scoring teams did not have access to Section 1 information.

Section 1 overview

Section 1 included business entity and ownership data, which contained identifiable applicant information. Section 1 of the application was not scored as an individual section; however, select redacted Section 1 information was needed and communicated to the Business Plan and Financial Plan scoring teams in the form of a summary sheet with the corresponding application ID to be scored as part of Section 2. The Section 1 scoring teams indicated whether or not the applicants submitted the required Section 1 information and the Section 2 Business and Financial plan scoring team used the following nine criteria from the Section 1 summary sheet to award points in their Section 2 scoring: (1) Owners and Officers Roster Form, (2) Liquid Assets Form, (3) Financial Responsibility Insurance, (4) Financial Responsibility - Escrow/Surety, (5) Tax Payment Records Cover Page, (6) Business Entity and Contact Information Form ? Secretary of State, (7) Property Owner Approval for Use Form, (8) Notice of Proper Zoning Form and (9) Organizational Chart Cover Page.

Redaction

Prior to the distribution of Section 2 materials to the independent scoring teams, a redaction team reviewed Section 2 of all applications to confirm that any identifiable information was either omitted or redacted, as the application instructions indicated identifiable information should not be included in Section 2. After the redaction process was complete, a redacted copy of each portion of the Section 2 applications was uploaded by one of the MMCP Program Administrators to Tumbleweed, for the Section 2 scoring teams to analyze.

This report is intended solely for the information and use of the State of Ohio Department of Commerce and its counsel and is not intended to be and should not be used by anyone other than these specified parties.

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State of Ohio Department of Commerce ? Medical Marijuana Control Program cultivator licensing scoring analysis

Section 2 overview

Section 2 of the cultivator application required submission of five distinct plan documents: ? Business Plan ? Financial Plan ? Operations Plan ? Quality Assurance Plan ? Security Plan

Each Section 2 scoring team consisted of three reviewers per team; two teams included a mix of external consultants and State employees, according to the level of industry expertise necessary to analyze the plans. The Business and Financial Plans were reviewed by the same Section 2 scoring team. Each of the other plans were reviewed by a scoring team that focused solely on that plan. The following summarizes the composition of the Section 2 scoring teams:

? Business/Financial Plans - 3 State employees ? Operations Plan ? 2 external consultants, 1 State employee ? Quality Assurance Plan ? 1 external consultant, 2 State employees ? Security Plan ? 3 State employees

Each scoring team received only those sections of the applications applicable to their review topic through uniquely assigned folders set up in Tumbleweed. The Tumbleweed folders had access restrictions assigned to them, and scoring teams were not provided access to any plans other than those which they were responsible for reviewing. The scoring teams were also instructed to not perform additional research outside of the documentation that was provided to them. The scoring teams worked in batches of 10 applications at a time to manage the volume of applications to be reviewed.

Using feedback from scoring teams, which included external consultants, the DOC developed scoring sheets for each plan based on the requirements of the plan and the consultants' industry knowledge. A score sheet was created for each sub-section within each plan with specific criteria for that sub-section. The lower portion of the scoring sheet contained a scoring rubric, which was used to calculate the points to be awarded based on the number of plan features demonstrated for that sub-section.

For every plan, each individual member of the scoring team independently reviewed the respective sub-section of the application and reached a determination as to which criteria were demonstrated in the plan. Once independent assessments were completed, a consensus discussion occurred among the members of the scoring team. During this consensus discussion, the team members reached a joint conclusion as to how many criteria were demonstrated within the plan and how many points should be awarded based upon the scoring rubric for each plan. The Team Lead recorded the consensus decision with respect to whether criteria were met, along with the corresponding points to be awarded based upon the scoring rubric for each plan, on a consensus score sheet and saved the consensus score sheets in the Tumbleweed system.

This report is intended solely for the information and use of the State of Ohio Department of Commerce and its counsel and is not intended to be and should not be used by anyone other than these specified parties.

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